IDEAS home Printed from https://ideas.repec.org/a/bde/revisl/y2021i5n8.html
   My bibliography  Save this article

The design of macroeconomic scenarios for climate change stress tests

Author

Listed:
  • Pablo Aguilar
  • Beatriz González
  • Samuel Hurtado

Abstract

The challenges of climate change affect all aspects of the economy, including financial stability, which may be affected both by the physical risks (associated with the climate change process itself) and the transition risks (associated with initiatives to curb the climate change process). This article presents a model designed to produce macroeconomic scenarios, chiefly related to transition risks, to serve as a basis for stress tests to verify that all the components of the financial system are prepared for possible adverse events of this type. In particular, these scenarios are based on a hypothetical rise in the price of CO2 emission allowances, over a 2-5 year horizon. The model simulates the impact of this shock on the Spanish economy, paying particular attention to sectoral asymmetries arising from the intensity with which different types of energy are used in each industry, the interdependencies summarised in the input-output tables for the Spanish economy and the general equilibrium effects in terms of relative price changes and sectoral reallocation.

Suggested Citation

  • Pablo Aguilar & Beatriz González & Samuel Hurtado, 2021. "The design of macroeconomic scenarios for climate change stress tests," Financial Stability Review, Banco de España, issue Spring.
    • Handle: RePEc:bde:revisl:y:2021:i:5:n:8
    Note: 40
    as

    Download full text from publisher

    File URL: https://www.bde.es/f/webbde/Secciones/Publicaciones/InformesBoletinesRevistas/InformesEstabilidadFinancera/21/8_Escenarios_FSR.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Bolton, Patrick & Kacperczyk, Marcin, 2021. "Do investors care about carbon risk?," Journal of Financial Economics, Elsevier, vol. 142(2), pages 517-549.
    2. Ana Arencibia Pareja & Samuel Hurtado & Mercedes de Luis López & Eva Ortega, 2017. "New version of the quarterly model of Banco de España (MTBE)," Occasional Papers 1709, Banco de España.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Pablo Aguilar & Beatriz González & Samuel Hurtado, 2021. "The design of macroeconomic scenarios for climate change stress tests," Financial Stability Review, Banco de España, issue Spring.
    2. Bua, Giovanna & Kapp, Daniel & Ramella, Federico & Rognone, Lavinia, 2022. "Transition versus physical climate risk pricing in European financial markets: a text-based approach," Working Paper Series 2677, European Central Bank.
    3. Simone Giansante & Mahmoud Fatouh & Nicholas Dove, 2023. "Carbon Emissions Announcements and Market Returns," Sustainability, MDPI, vol. 15(13), pages 1-16, June.
    4. Sandu Diana-Mihaela, 2023. "Is There Any Effect of ESG Scores on Portfolio Performance in South Africa?," Proceedings of the International Conference on Business Excellence, Sciendo, vol. 17(1), pages 1807-1817, July.
    5. Apel, Matthias & Betzer, André & Scherer, Bernd, 2023. "Real-time transition risk," Finance Research Letters, Elsevier, vol. 53(C).
    6. Ferriani, Fabrizio & Gazzani, Andrea, 2023. "The impact of the war in Ukraine on energy prices: Consequences for firms’ financial performance," International Economics, Elsevier, vol. 174(C), pages 221-230.
    7. Waldemar Karpa & Antonio Grginović, 2021. "(Not So) Stranded: The Case of Coal in Poland," Energies, MDPI, vol. 14(24), pages 1-16, December.
    8. Alessi, Lucia & Battiston, Stefano, 2021. "Two sides of the same coin: Green Taxonomy alignment versus transition risk in financial portfolios," JRC Working Papers in Economics and Finance 2021-14, Joint Research Centre, European Commission.
    9. Heider, Florian & Inderst, Roman, 2021. "A Corporate Finance Perspective on Environmental Policy," EconStor Preprints 253669, ZBW - Leibniz Information Centre for Economics.
    10. Fried, Stephie & Novan, Kevin & Peterman, William B., 2022. "Climate policy transition risk and the macroeconomy," European Economic Review, Elsevier, vol. 147(C).
    11. Patrick Gruning, 2022. "Fiscal, Environmental, and Bank Regulation Policies in a Small Open Economy for the Green Transition," Working Papers 2022/06, Latvijas Banka.
    12. Pramendra Singh Tank & Sanjay Kumar Jain & Balagopal Gopalakrishnan, 2023. "Do firms respond to commitments on climate change? Impact of COP21 on investment intensity," IIMA Working Papers WP 2023-08-02, Indian Institute of Management Ahmedabad, Research and Publication Department.
    13. Alix Auzepy & Christina E. Bannier & Fabio Martin, 2023. "Are sustainability‐linked loans designed to effectively incentivize corporate sustainability? A framework for review," Financial Management, Financial Management Association International, vol. 52(4), pages 643-675, December.
    14. Shen, Hongtao & Yang, Qing & Luo, Le & Huang, Nan, 2023. "Market reactions to a cross-border carbon policy: Evidence from listed Chinese companies," The British Accounting Review, Elsevier, vol. 55(1).
    15. Stefano Giglio & Bryan Kelly & Johannes Stroebel, 2021. "Climate Finance," Annual Review of Financial Economics, Annual Reviews, vol. 13(1), pages 15-36, November.
    16. Ferriani, Fabrizio, 2023. "Issuing bonds during the Covid-19 pandemic: Was there an ESG premium?," International Review of Financial Analysis, Elsevier, vol. 88(C).
    17. Laeven, Luc & Popov, Alexander, 2023. "Carbon taxes and the geography of fossil lending," Journal of International Economics, Elsevier, vol. 144(C).
    18. Martinsson, Gustav & Sajtos, László & Strömberg, Per & Thomann, Christian, 2022. "Carbon Pricing and Firm-Level CO2 Abatement: Evidence from a Quarter of a Century-Long Panel," Misum Working Paper Series 2022-10, Stockholm School of Economics, Mistra Center for Sustainable Markets (Misum).
    19. Armin Varmaz & Christian Fieberg & Thorsten Poddig, 2024. "Portfolio optimization for sustainable investments," Annals of Operations Research, Springer, vol. 341(2), pages 1151-1176, October.
    20. Döttling, Robin & Lam, Adrian, 2023. "Does Monetary Policy Shape the Path to Carbon Neutrality?," OSF Preprints kqdar, Center for Open Science.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bde:revisl:y:2021:i:5:n:8. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/bdegves.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.